Yugoslavia faces the threat of a humanitarian disaster this winter in the aftermath of Nato's 11-week war earlier this year which caused £38bn worth of damage and transformed the country into the poorest in Europe, a new report discloses.

The Economist Intelligence Unit says today that the air campaign inflicted "enormous damage on the Yugoslav economy and infrastructure", with gross domestic product poised to shrink by 40% this year.

Real GDP this year is expected to be just 30% of the level a decade ago, the sharpest decline of any of the 27 countries making the transition from communism to a market economy. Income per head will be below even that of Albania, which has until now been the poorest in Europe.

The EIU added that the west's policy of denying reconstruction aid to Serbia while president Slobodan Milosevic was in power could run into trouble.

"It is impossible to have a coherent programme to which the west is committed, that excludes Serbia, which is at the centre of the region's trade and transport links. "The denial of aid could contribute to a humanitarian disaster in Serbia this winter, with refugees streaming out to neighbouring countries."

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